Metal scrips are hot

Newly constituted metal index surges 15% in the last one month.

Metal scrips are in the limelight on the bourses, with the Bombay Stock Exchange's (BSE's) newly-constituted metal index surging almost 15 per cent in the last one month.

Prospects of metal prices remaining firm due to strong demand from China and India have driven the interest in metal scrips, according to market sources.

In fact, metal prices have risen sharply on the London Metal Exchange (LME) in the last few days and analysts said that if these prices were sustained for some more time, "we will see an upward revision in domestic prices too".

While the price of aluminium has shot up from $1,700 a tonne last week to $1,801a tonne today, prices of copper are being currently quoted at $2,970 per tonne from around $2,820 ten days ago.

Industry observers maintain that the growth is largely due to strong demand from China. "A lot of hedge funds have been buying in large quantities on the LME in the last few days. Therefore, prices of all metals have seen a upward curve," a senior industry official said. Prices of alumina have also seen a sharp movement upwards from $1,520 a tonne last week to $1,580 a tonne today.

The global aluminium industry has shown a 9 per cent growth in consumption since January this year, with the US markets growing at a healthy rate of around 11 per cent. However, production has been lower at around 7 per cent.

"That's because many smelters closed down as operations became unviable due to high cost pressures," an analyst tracking the sector said.

"The outlook on the sector remains very attractive as there is a broadbased economic recovery in most parts of the world," he added.

Meanwhile, industry observers said no new capacities were coming up in the next 6-8 months, leading to a further supply crunch. The rise in global metal prices will result in thick margins for domestic aluminium companies, as they have the cost advantage of cheaper raw material.

The National Aluminium Company, which exports almost 50 per cent of its alumina production and 44 per cent of its aluminium production, could see a drastic improvement in its operating margins, analysts said. They added that Hindalco and Balco would also benefit on the same account.